How to buy a SaaS business?
The adoption of SaaS businesses is consistently on the rise, with projections indicating further growth. This makes acquiring a profitable SaaS an attractive option to start your own business.
When it comes to buying a SaaS or Micro-SaaS, there are two main options for SaaS founders: acquiring from a dedicated marketplace/platform for buying/selling SaaS/Micro-SaaS businesses or buying it directly from the seller. Both have their own merits and drawbacks. If you're making your debut purchase, it might be prudent to go via a platform. The process on platforms is usually more structured and streamlined, usually includes an initial vetting phase, and platforms often provide an escrow services that reduces the risks associated with acquiring a SaaS.
Before you commit to any SaaS, however, it's crucial to have a clear grasp of its specific niche and domain. Conduct thorough market research, pinpoint competitors, and genuinely comprehend the problem the SaaS aims to address. Without this foundational understanding, regardless of how attractive the valuation metrics for a SaaS seem, managing and scaling your SaaS /Micro-SaaS business could prove challenging.
In the following sections, we'll explore essential considerations before acquiring a SaaS business, share some tips, and list a few popular platforms where you can you can buy a SaaS.
Is it worth acquiring a SaaS business and growing?
The options besides acquiring a SaaS include developing one yourself or employing developers to create it for you. Both approaches are time-intensive, and the later also demands a significant financial commitment.
But remember, starting a SaaS business isn't just about the development phase - that's just a small part of it. The uphill task is acquiring those early customers and turning the SaaS into a sustainable and growing business.
By acquiring an already profitable SaaS, you bypass the early challenges of customer acquisition. The business model has been validated. This sets you up to focus on the challenges and strategies of growing your SaaS business further.
7 things to evaluate before acquiring a SaaS business
- Financial Performance: Assess essential SaaS metrics such as Monthly Recurring Revenue (MRR), Annual Recurring Revenue (ARR), MRR growth rate, profit margin etc. It's also vital to consider the churn rate, which represents the percentage of subscribers who don't renew their subscriptions within a specified period. As SaaS pricing is typically subscription based, retaining customers is an important consideration. A higher churn rate not only shows customer dissatisfaction, but is an indicative of an unstable revenue which is undesirable.
- Marketing and Sales Metrics: Review metrics like website traffic, email subscribers, and leads, along with the Average Revenue Per Account (ARPA) etc.
- Customer Base and Acquisition Strategy: Analyzing the existing customer base and the channels used to acquire customers are crucial for evaluating the business sustainability and its growth potential. Metrics like customer acquisition cost (CAC) and Customer Lifetime Value (LTV) should be primary considerations.
- Technical Evaluation: Assessing software architecture, code quality, security and tech stack gives an estimate of the future maintenance and scalability costs and issues.
- Operational Costs: Understanding expenses related to hosting and infrastructure, third-party software, customer support, marketing and sales etc. gives a clearer picture of the SaaS business’s financial health.
- Legal & Compliance: This includes evaluating software licensing agreements, copyrights, data protection and privacy regulations like GDPR etc as well as any existing contracts the business might be having with others.
- Market Position and Unique Selling Proposition (USP): This gives insights into the competitive advantage and future growth prospects of the SaaS you are acquiring.
Read some good points on building SaaS startups along with some tech startup ideas
5 Platforms to acquire SaaS and Micro-SaaS business in 2024
- Acquire - Acquire is a marketplace with over 200k+ entrepreneurs that helps SaaS founders sell their products. They also have 100+ approved advisors to get professional help with the acquisition.
- Microns.io - A marketplace to buy micro-startups without any commission.
- Flippa: Flippa is another place to buy SaaS/Micro-SaaS and other digital businesses. Flippa usually helps with complete background checks of the sellers and buyers and charges more than most platforms but provides additional quality checks.
- Tiny Acquisitions - Small web-based projects worth $100,000 or less, including SaaS, can be bought and sold on this marketplace.
- Empire Flippers: A curated marketplace for buying and selling online businesses including SaaS.
Should I buy a B2B SaaS or a B2C SaaS?
B2B (Business-to-Business) SaaS companies provide software solutions to other businesses addressing their unique challenges. B2C (Business-to-Consumer) SaaS products, on the other hand, cater to individual consumers needs such as productivity tools, fitness apps or personal finance management.
Both B2B SaaS and B2C SaaS provide good opportunities for acquisition. However, their marketing and sales strategies differ significantly. B2C SaaS have the potential to grow rapidly but the revenue streams can be more volatile.
In contrast, acquiring customers for B2B SaaS often involves a lengthier, more intricate process compared to B2C, where purchasing decisions might be impulsive. The main advantages of B2B SaaS are long-term contracts with potentially higher pricing and lower churn rate. This results in having a predictable revenue stream. However, they typically have higher expectations for swift, high-quality customer support than B2C SaaS.
When choosing B2B SaaS or B2C SaaS for acquisition consider your expertise, interest, financial and time commitment and decide accordingly.
The Dos and Don’ts of buying a SaaS Business
- Don't make impulsive decisions. Do take the time to thoroughly analyze the business and its SaaS metrics.
- Never accept the seller's claims at face value. Always rely on data to form your conclusions.
- Conduct due diligence on financial, marketing and sales metrics, operational costs, technical aspects, and legal and compliance issues. If necessary, consult with experts.
- Do consider both current revenue and future growth potential. High revenue today might be due to a trend that won't sustain in the future.
- When available, utilize an Escrow service to mitigate risks.
- Understand the transfer process in detail. Make sure you grasp how the domain, software, databases, customer data, website, and other assets will be transferred.
- Negotiate for post-transfer support from the seller, ensuring they will be available to address any technical or operational issues for an initial period.
- Familiarize yourself with SaaS business valuations and negotiate the purchase price accordingly.
Acquiring and expanding a SaaS, like any business, comes with its unique set of challenges and risks. However, the benefits of a recurring revenue stream, coupled with the relative simplicity of scaling, make it appealing. If you're interested in developing your own SaaS rather than acquiring one, reading about SaaS ideas, Micro SaaS Ideas and Digital Product Ideas will be a good starting point.
